Why Gold Remains One of Our Highest Conviction Allocations Going Into 2026

Over the past two weeks, the gold market has been driven less by emotion and more by a decisive shift in global macro structure. Gold’s recent consolidation in the USD 4,000, 4,200/oz band is masking the strength of underlying flows, and in our view, setting the stage for the next leg higher.

1. Policy Regimes Are Turning in Gold’s Favour

The Federal Reserve’s communication pivot has been the single most important development. Markets now price a December rate cut with ~85% probability, followed by another cut in early 2026, as labour market cooling and softer retail and producer inflation prints reduce the Fed’s tolerance for restrictive real rates. Each dovish signal this month triggered immediate institutional buying in gold futures and ETFs.

Parallelly, the RBI is expected to cut rates to 5.25%, supported by a collapse in India’s CPI to 0.25%, the lowest on record. A weaker INR, near all time lows, reinforces gold demand as a currency hedge.

2. Physical Demand Is Surging in Key Hubs

India’s October and November buying pattern was unusually strong despite record rupee prices.

• October imports hit ~140 tonnes, one of the highest monthly tallies in a decade.

• Indian gold ETFs saw ₹77 billion inflows in October, pushing total holdings above 83.5 tonnes, the highest on record.

China’s demand has remained firm but more measured:

• October SGE withdrawals were above normal seasonal levels,

• ETF holdings saw steady inflows, and

• The PBoC continued adding modestly to reserves.

3. Investment Flows Tell the Real Story

Global gold ETFs have added substantial tonnage in 2025, tightening free float supply and reinforcing the market’s structural strength. Central bank demand has remained consistently elevated, providing a reliable bid on corrections and supporting price resilience above USD 4,000.

4. Our Forward View

We expect gold to remain supported as:

• Real yields continue grinding lower,

• The USD weakens into a global cutting cycle,

• Fiscal deterioration in major economies raises debasement hedging demand, and

• EM central banks keep diversifying away from dollar assets.

Our base case forecast for 2026 remains USD 4,500, 5,000/oz, with upside risk skewed toward new nominal highs if global easing accelerates or geopolitical risk rises.

Our Strategy

At Ethereal Capital, we maintain a core long allocation, with tactical overlays that accumulate on liquidity driven dips, especially during oversold periods where ETF flows stay positive and central bank purchases remain uninterrupted. 

Gold, to us, is not a momentum chase, it is a structural allocation in a world increasingly defined by policy volatility, currency fragility, and sovereign balance sheet stress.